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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.

Today's Trade: Royal Commission news drives bank shares into the red

The gold price fell on Wednesday after upbeat US data prompted a USD recovery

Price continued to push higher in the steel and iron ore market

Nickel also made gains; it closed 1.5% higher at $11,520

By Saxo Capital Markets Australia

Overnight and early trading

The S&P/ASX 200 fell heavily at the open; it was down 0.87% to 5,958.80 at 1052 AEST (2352 GMT, on Wednesday evening).

Asian stocks were poised for a muted start to trading on Thursday ahead of the release of Chinese economic data and a central bank decision in South Korea.

Technology shares in the US tumbled, while the S&P 500 Index ended the day flat, amid signs of a rotation away from the year’s leaders into financial stocks as tax legislation proceeded through the Senate. Futures on equity gauges in Japan were flat, while Australia and Hong Kong contracts were down.

The price of gold fell on Wednesday, as upbeat US growth data prompted a recovery in the US dollar and a bounce in US Treasury yields. Photo: Shutterstock

The two biggest slices of the S&P 500—technology companies and financial firms—played tug of war with the broader index overnight.

Banks have helped lead stocks higher this week, with investors saying the sector is benefiting from robust economic growth around the world, gradually rising interest rates and the prospect of tax cuts. The S&P 500’s financial sector rose 1.8% to its highest level of the year Wednesday.

At the same time, investors pulled back from tech companies, which have gotten pricier as they fueled this year’s run-up in stocks. Technology—the largest sector in the S&P 500, accounting for nearly a quarter of the index’s value as of the end of last month—slid 2.6% in its worst day since early June.

The S&P 500 fell 0.97 point, or less than 0.1%, to 2626.07. The Dow Jones Industrial Average rose 103.97 points, or 0.4%, to 23940.68 and posted a fresh record, while the Nasdaq Composite—heavily weighted with tech companies—declined 87.97 points, or 1.3%, to 6824.39.

On Tuesday, Federal Reserve governor Jerome Powell, President Donald Trump’s nominee to succeed Janet Yellen as head of the Fed, said he believes some financial crisis-era regulations should be re-evaluated and the Senate Budget Committee advanced Republicans’ tax bill.

Strong economic data added to financial stocks’ momentum. Data showed US growth in the third quarter was stronger than earlier thought, with GDP expanding at a 3.3% annual rate.

Hartwig Kos, chief investment officer at SYZ Asset Management, said he is positioned heavily toward US banks and economically sensitive corners of the market and recently added to his overall holdings in equities.

Treasury yields rose after Wednesday’s GDP number, also benefiting bank stocks because higher yields tend to boost lending profitability. The yield on the 10-year U.S. Treasury note rose to 2.376% from 2.338% on Tuesday. Yields rise as prices fall.

Corporate news drove swings in individual stocks.

Chipotle Mexican Grill shares advanced $16.13, or 5.6%, to $301.99 after the company said founder Steve Ells would step down as chief executive as the chain continues to struggle with food-safety concerns that have spooked customers.

Shares of design-software provider Autodesk fell 20.61, or 16%, to 109.34 following the firm’s announcement that it would cut 13% of its workforce.

Also on Wednesday, a technical error at Fidelity Investments temporarily blocked millions of customers from their online brokerage accounts.

Sources: Bloomberg, TradingFloor.com, WSJ.com, CNBC

Local markets

Bank of New York Australia ADR Index is down 0.8% to 266.1, BHP Billiton ADRs are down 1.3% to $A27.34 equivalent, a 1.1% discount to last Sydney close, Rio Tinto ADRs are down 1.7% to $A63.20 equivalent, a 11.9% discount to the last Sydney close.

Big four bank chairmen back inquiry to end 'political uncertainty': The four chairmen and CEOs of the major Australian banks have emailed the Treasurer on Thursday morning, asking for the government to call an inquiry into the financial services sector in order to end the political uncertainty and restore public trust, which is being damaged as bank culture is dragged through the mud.

The price of gold fell on Wednesday, as upbeat U.S. growth data prompted a recovery in the dollar and a bounce in U.S. Treasury yields, though it remained stuck within the narrowest monthly range since 2005. The US data, along with signs of progress with US tax cuts and Europe's Brexit negotiations, also brought fresh highs for world stocks on Wednesday. Gold meanwhile fell further from Monday's six-week high of just below $1,300/oz. Spot gold was down 0.78% at $1,283.50/oz, while U.S. gold futures for December delivery were down 0.95% at $1,286.90. Gold stocks in Toronto fell 1.95%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.

Indecision about supply cuts among the world’s biggest crude oil exporters pushed crude prices to the lowest level in a week. Futures declined 1.2% in New York as conflicting headlines muddled perceptions of what may emerge from a crucial Opec-led meeting in Vienna on Thursday. Although an important committee advising the group has reached a consensus, details about the timing or implementation of any extension of supply caps have yet to be disclosed. West Texas Intermediate for January delivery dropped 69 cents to settle at $57.30/barrel on the New York Mercantile Exchange, the lowest since November 21. Brent for January settlement, which expires Thursday, edged lower by 50 cents to end the session at $63.11 on the London- based ICE Futures Europe exchange. The global benchmark traded at a premium of $5.81 to WTI. The more-active February contract fell 71 cents to settle at $62.53/b. Saudi Arabia Oil Minister Khalid al-Falih said he was not worried about the market reaction on Wednesday, when asked about falling crude prices in Vienna. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.

The risks worrying investors in base metals didn’t seem to spread to the steel and iron ore market, with prices continuing to push higher. Rebar futures in China marched higher, driven by strength in the domestic market. So much so that traders are now diverting products away from the export market. This positive sentiment has spread to iron ore markets. Spot iron ore added 0.2% or $0.16 to close at $67.92. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.

Benchmark copper on the London Metal Exchange closed down 0.7% at $US6760 a tonne after hitting $6,737, the lowest since November 17. The metal used in power and construction has fallen 3.5% from Friday's close. Copper moved below its 50-day moving average at around $6,798. Copper stocks: OZL, SFR.

LME aluminium ended down 1.6% at $US2068 a tonne after touching $2,053, the lowest since August 16. Trading after the official closing price it was on track for the biggest one-day fall since April 2016. Aluminium fell through levels around the 100-day moving average at $2080, triggering technical selling, said a trader. Aluminium stock: AWC

AUDUSD extended losses for four consecutive days as US dollar surged last night. The major driver behind the weakness of AUDUSD is falling spread between AU 10 year and US 10 year yields. This spread broke through the double bottom 0.13 and made a fresh low at 0.076 (itslowest level since 2001).

Today’s focus will be on the CAPEX numbers due out at 1130 AEST (0030 GMT) and China's manufacturing PMI due out at 1200 AEST (0100 GMT). Regardless of the outcome we would look to remain short on AUDUSD and sell even if there is any rally this afternoon. The next support level should be the uptrend (from the 2016 low 0.6827), which is expected to cross 0.75 handle.

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